October 4, 2016 / 10:52 PM / in 2 years

Alberta grid operator says prices must rise to lure investors

CALGARY, Alberta (Reuters) - Alberta power prices will have to rise to four times the current 2016 average to incentivize investment in building new power generation, the province’s electric system operator said on Tuesday.

The required quadrupling in prices, from historically low levels, illustrates the challenge facing the Alberta government, which has pledged to phase out coal-fired emissions and ensure 30 percent of the province’s electricity comes from renewable sources by 2030.

Mike Law, vice president of renewables development and sustainability at the Alberta Electric System Operator (AESO), said power prices will need to rise to around C$75-C$85/MWh - the price a newbuild combined cycle gas facility requires for a return on investment - to stimulate development.

Power prices in Alberta are languishing around multiyear lows as a result of excess supply and slowing economic growth, and average C$17/MWh so far in 2016.

But even the five-year average price of C$61/MWh is well below the levels mentioned by Law, who said it will be difficult to communicate to consumers why prices have to climb.

“I do think it’s going to be a challenge but I also think there’s a broad recognition that C$20 pricing in Alberta is not sustainable,” he said in an interview.

The province is Canada’s biggest greenhouse gas polluter due to its oil sands industry and the left-leaning NDP government in is the midst of unveiling a Renewable Electricity Program to explain how the switch to cleaner power will occur.

Last month it committed to supporting 5,000 MW of new renewable energy capacity, and promised further details in November of which projects will be eligible for support.

AESO, tasked with figuring how to integrate renewables into the grid, delivered its recommendations to the government in May.

While those are yet to be made public, Law said renewables subsidies are necessary for the time being, although he expected them to shrink over time.

“At the moment there is a need to provide an incentive, renewables are still less economic than for instance the natural gas turbine unit,” he said. “As this industry develops we’re going to see a change in the need for the subsidies.”

As coal plants are phased out by 2030, AESO expects Alberta to need another 8,000 megawatts of firm generation, the majority of which will likely come from natural gas plants.

Law said those are not expected to need subsidies, as they should be supported by market prices.

Editing by Matthew Lewis

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